Acting Comptroller of the Currency Testifies on Regulatory Priorities

The Office of the Comptroller of the Currency (OCC) of the U.S. Department of the Treasury has recently outlined its efforts to the U.S. House Financial Services Committee to ensure a safe, sound, and resilient U.S. banking system. In this context, the OCC also summarized its key priorities for the upcoming year in terms of supervision of in-scope banking entities, monitoring of (emerging) risks, and making sure that the regulatory framework is fit for purpose. The key priorities are briefly outlined below:
(1) Adapting to Digitalization: In view of increasing dependencies between banking institutions and FinTech companies for performing various banking functions, the OCC has recently issued – along with other U.S. banking regulators – Interagency Guidance on Third-Party Relationships: Risk Management. The guidance emphasizes the importance of effective risk management in these relationships to ensure consumer protection, maintain the stability of banks, and uphold regulatory compliance. Supervised institutions are expected to observe this guidance in their operations and it will be a key focus of the OCC to follow-up on compliance in this matter.
Furthermore, while acknowledging the potential benefits of widespread Artificial Intelligence (AI) adoption in the banking sector, the OCC highlights the importance of managing associated risks effectively. Banks are expected to exercise caution and implement appropriate risk management frameworks when integrating AI into various use cases.
(2) Managing of Climate-Related Risks by Supervised Institutions: As the need for management of climate-related risks by banks is quite evident, the OCC and various other banking regulators have recently approved the final Principles for Climate-Related Financial Risk Management for Large Financial Institutions, whereby „large“ refers to institutions with total consolidated assets exceeding $100 billion. One of the key priorities of the OCC will be to monitor compliance with such principles.
(3) Guarding Against Complacency by Banks: Despite the current „calm“ in the banking industry and the fact that most banking institutions are well equipped to deal with operational and market challenges, the OCC will continue its efforts to make aware of and monitor (emerging) threats such as the rising uncertainty in the real estate sector. In fact, it has recently issued a Policy Statement on Prudent Commercial Real Estate Loan Accommodations and Workouts to provide guidance to lenders and supervisory staff on acceptable loan workout arrangements. The statement thereby addresses risk management expectations for banks, provides guidance on regulatory reporting, and discusses accounting issues related to loan classification and non-performing loan reporting.
(4) Equality in the Banking Sector: Reducing banking inequality is crucial for fostering trust in the financial system which is why it is a key priority of the OCC. Sustained efforts from banks, regulators, the public, and stakeholders will be required to ensure responsible and equitable financial services, so the OCC. Therefore, the U.S. banking regulators recently finalized targeted amendments to the Community Reinvestment Act aimed at promoting business in underserved areas and eliminating „redlining“ by institutions. Following the finalization, the OCC will now „turn its efforts to perhaps the most important step toward reducing inequality, which is the implementation of the new rule“.
Other areas of focus, so the regulator, are the support of small community banks and minority deposit institutions and the improvement of financial resilience, particularly of larger institutions.